Weinberger v. Freedman Broder CA2/8

Filed 5/6/15 Weinberger v. Freedman Broder et al. CA2/8
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California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
ED. WEINBERGER, B252464
Plaintiff and Appellant. (Los Angeles County Super.
Ct. No. BC492017)
v.
FREEDMAN BRODER & COMPANY
ACCOUNTANCY CORPORATION et al.,
Defendants and Respondents,
APPEAL from judgments of the Superior Court of Los Angeles County. Kevin C.
Brazile, Judge. Reversed.
Johnson & Johnson, James T. Ryan and Ilyssa M. Adler, for Plaintiff and
Appellant.
Chapman, Glucksman, Dean, Roeb & Barger, Randall J. Dean, J. Andrew Wright
and Ashley H. Verdon, for Defendants and Respondents Freedman Broder & Company
Accountancy Corporation and William C. Broder.
Garrett & Tully, Stephen J. Tully and Efren A. Compeán, for Defendants and
Respondents Myers & Associates, Inc., and Ronald J. Myers.
__________________________
Ed. Weinberger appeals from the judgments dismissing his accounting malpractice
action after the trial court found that pleading defects concerning the statute of limitations
warranted judgment on the pleadings for one set of defendants and an order sustaining
without leave to amend the demurrers of another set of defendants. We conclude that
Weinberger’s pleadings raised a sufficient factual question concerning his alleged
delayed discovery of defendants’ wrongdoing and therefore reverse the judgments.
FACTS AND PROCEDURAL HISTORY1
Ed. Weinberger is a successful writer, creator, and executive producer of TV
shows, including “The Cosby Show,” “Taxi,” “The Mary Tyler Moore Show,” and “The
Tonight Show.” Weinberger also created the sitcom “Amen,” which aired from 1986
through 1991.
In 1989 Weinberger entered an agreement with Carson Productions, Inc. that
would pay him $8 million up front for his work on “Amen”.2 The agreement provided
that Weinberger would be paid more money in the future—contingent compensation—if
“Amen” turned enough of a profit over time to recoup the initial $8 million payment.
William C. Broder of the accounting firm Freedman Broder & Company became
Weinberger’s accountant and business manager in 1991.3 Broder was aware of the
Carson agreement and one of its duties was to ask for yearly accounting statements from
Carson and otherwise keep track of whether the show was turning enough of a profit in
1 In accord with the applicable standard of review, which we discuss post, our
statement of facts assumes that the complaint’s allegations are true. We derive our
statement of facts from the operative second amended complaint.
2 The Carson in Carson Productions was the late Johnny Carson, and we will refer
to this entity as Carson. The complaint does not allege Carson’s role in connection with
“Amen”, but we assume it was the show’s production company.
3 We will refer to William Broder and his accounting firm collectively as Broder.
We will refer to Broder and Myers collectively as respondents.
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syndication to recoup Weinberger’s initial $8 million payment and trigger his right to
receive contingent compensation.
In 1995, both Carson and Broder told Weinberger that he should not expect to
receive contingent compensation from “Amen” because his advance payment had been so
large, the show’s production costs had been high, and the show enjoyed only mediocre
success.
The last accounting statement Carson sent Broder was for the period ending June
30, 1998. Broder learned, but never informed Weinberger, that he was a little more than
$1.45 million away from recouping his advance payment. Carson never sent another
statement after that time. Sometime before 1999, Broder decided to stop asking Carson
for accounting statements because Broder believed if it never learned about Weinberger’s
recoupment status on “Amen” the statutes of limitations for claims against Carson would
not be triggered. Broder never advised Weinberger that he needed to monitor his
contingent compensation status or hire someone else to do it for him.
In 2002, Broder asked Weinberger to sign a liability release form for actions taken
by Broder. The contents of that form are not alleged. Also in 2002, Broder sent to
storage all files concerning Weinberger’s right to contingent compensation for “Amen”.
Broder’s compensation came from a percentage of Weinberger’s earnings. In 2004,
Broder told Weinberger it would no longer represent him because Weinberger was not
generating enough income.
In 2004, Ronald J. Myers of the accounting firm Myers & Associates, Inc., took
over for Broder. Myers received all of Broder’s files concerning Weinberger, including
all information relating to Weinberger’s contingent compensation rights from “Amen”.
Myers also learned about the “Amen” rights from discussions with Broder. However,
Weinberger also alleged that Broder intentionally failed to advise Myers that Broder had
not checked on the status of Weinberger’s contingent compensation rights for the past
five years. Myers never monitored Weinberger’s rights. In May 2008, Myers terminated
its services with Weinberger, and Weinberger does not allege that anyone else handled
his business and financial matters after that time.
3
Sometime in 2011, Weinberger asked Carson to provide an “Amen” accounting
statement. When Carson refused, Weinberger initiated an arbitration proceeding against
Carson in May 2011. One month later, Weinberger learned that his $8 million advance
had been recouped and that Carson owed him a significant amount of contingent
compensation. In June 2012, Carson finally provided information showing that the
advance had been recouped, and contingent compensation was owed, as of 1999.
Because the four-year breach of contract statute of limitations barred any claims before
2007, Carson settled the dispute by paying Weinberger the amounts owed after that time.
On September 12, 2012, Weinberger sued Broder and Myers for malpractice,
fraud, and breach of fiduciary duty. Myers demurred on the grounds that Weinberger did
not adequately allege causes of action for fraud and breach of fiduciary duty. Broder
demurred on the grounds that all three causes of action against it were barred by the
statute of limitations and that the fraud cause of action did not allege the required
elements with specificity.
In response, Weinberger filed a first amended complaint. Myers again demurred
to the fraud and breach of fiduciary duty causes of action, while Broder demurred again
on statute of limitations grounds and the failure to plead fraud with specificity. The trial
court sustained without leave to amend Myers’s demurrer to the fraud cause of action in
the first amended complaint, but overruled its demurrer to the fiduciary duty cause of
action. It sustained with leave to amend Broder’s demurrers to all causes of action,
finding that Weinberger had failed to allege facts explaining his delayed discovery of his
claims.
After Weinberger filed his second amended complaint, which we described above,
Broder demurred again, contending that: (1) as to all three causes of action against it,
Weinberger still failed to properly allege his delayed discovery of his causes of action;
and (2) as to the fraudulent concealment cause of action, he failed to allege that Broder
knew Weinberger had recouped his initial advance.
Weinberger opposed the demurrer, contending that he sufficiently alleged both
delayed discovery and equitable estoppel to asset the statute of limitations. The trial
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court rejected both contentions. As to delayed discovery, the trial court found that
Weinberger could have discovered his contingent compensation status as far back as
1999 when Carson stopped providing accounting statements, but did nothing until 2011.
As to equitable estoppel, the trial court found the doctrine inapplicable because it was
based on the same conduct alleged as the basis of Weinberger’s causes of action and did
not deter Weinberger from filing suit. The trial court then entered judgment for Broder.4
Two months later, Myers brought a motion for judgment on the pleadings on the
same statute of limitations grounds. That motion was granted and judgment was entered
for Myers.
STANDARD OF REVIEW
In reviewing a judgment of dismissal after a demurrer is sustained without leave to
amend, we must assume the truth of all facts properly pleaded by the plaintiff-appellant.
Regardless of the label attached to the cause of action, we must examine the complaint’s
factual allegations to determine whether they state a cause of action on any available
legal theory. (Black v. Department of Mental Health (2000) 83 Cal.App.4th 739, 745.)
We will not, however, assume the truth of contentions, deductions, or conclusions
of fact or law and may disregard allegations that are contrary to the law or to a fact which
may be judicially noticed. When a ground for objection to a complaint, such as the
statute of limitations, appears on its face or from matters of which the court may or must
take judicial notice, a demurrer on that ground is proper. (Code Civ. Proc., § 430.30,
subd. (a); Black v. Department of Mental Health, supra, 83 Cal.App.4th at p. 745.) We
may take judicial notice of the records of a California court. (Evid. Code, § 452,
4 The trial court did not reach Broder’s alternative contention that the intentional
fraud cause of action was inadequately pled. On appeal Broder did not raise this as an
alternative ground for affirming the trial court’s order as to that cause of action. As a
result we do not reach it and our reversal is based solely on the statute of limitations
issue. Likewise, Weinberger has not raised as an issue on appeal whether the trial court
erred by sustaining without leave to amend Myers’s demurrer to the fraud cause of action
in the first amended complaint. As a result, our reversal does not apply to that cause of
action.
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subd. (d).) We must take judicial notice of the decisional and statutory law of California
and the United States. (Evid. Code, § 451, subd. (a).)
In order for a demurrer to prevail on statute of limitations grounds, the defect must
clearly and affirmatively appear on the face of the complaint; it is not enough that the
complaint shows merely that the action may be barred. (E-Fab, Inc. v. Accountants, Inc.
Services (2007) 153 Cal.App.4th 1308, 1315-1316 (E-Fab).) A statute of limitations
defense is normally a question of fact. (Id. at p. 1320.) There are no hard and fast rules
for determining what facts or circumstances will trigger a potential plaintiff’s duty of
inquiry because it is a question of fact. It becomes a question of law only when
reasonable minds can draw but one conclusion from the pleadings. (Ibid.)
A motion for judgment on the pleadings is effectively the same as a demurrer and
we apply the same standard of review to the judgment for Myers. (Arce v. Childrens
Hospital of Los Angeles (2012) 211 Cal.App.4th 1455, 1483, fn. 16.)
DISCUSSION
The two-year statute of limitations for accountant malpractice (Code Civ. Proc.,
§ 339, subd. (1)), applies to all of Weinberger’s causes of action. This includes his
breach of fiduciary duty claims against respondents and his fraudulent concealment claim
against Broder, because they are based on the same facts and involve the same breach of
duty as his negligence causes of action. (Sahadi v. Scheaffer (2007) 155 Cal.App.4th
704, 715; Curtis v. Kellogg & Andelson (1999) 73 Cal.App.4th 492, 503.) Because
Broder and Myers stopped working for Weinberger in, respectively, 2004 and 2008, the
statute of limitations would have ordinarily run, respectively, sometime in 2006 and
2010, well before Weinberger filed his complaint in 2012.
Weinberger contends his action was timely under the delayed discovery rule,
which postpones accrual of a cause of action until the plaintiff discovers, or has reason to
discover, his cause of action. (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797,
807 (Fox).) A plaintiff has reason to discover a cause of action when he has reason at
least to suspect a factual basis for its generic elements of wrongdoing, causation, and
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harm. (Ibid.) Once that occurs, a potential plaintiff must conduct a reasonable
investigation of all potential causes of his injury. (Id. at pp. 808-809.) Plaintiffs are
charged with presumptive knowledge of an injury if they have information or
circumstances to put them on inquiry or if they have the opportunity to obtain knowledge
from sources available to them. (Id. at p. 808.)
This placed on Weinberger the burden of specifically pleading both the time and
manner of discovery and the inability to have made an earlier discovery despite
reasonable diligence. Conclusory allegations of delayed discovery are inadequate. (Fox,
supra, 35 Cal.4th at p. 808.)
Respondents contend the discovery rule is inapplicable for several reasons:
(1) Weinberger’s reliance on Broder’s 1995 prediction that contingent compensation
would likely never come due is belied by his allegations that he expected Broder to
continue monitoring its status and hired Myers to do the same; (2) his injuries occurred
and became apparent in 1999, when contingent compensation was first due and Carson
stopped providing accounting statements; (3) even if Weinberger cannot be charged with
knowledge that the accounting statements had stopped, he should have made inquiries
when his professional relationships with Broder and Myers ended in 2004 and 2008,
respectively; (4) his allegation that he was unable to discover his claims until Carson
denied his 2011 request for an accounting, leading to his alleged 2012 discovery of the
facts, does not explain why he waited so long after Myers quit in 2008; and (5) once that
happened Weinberger assumed control of his own affairs and, as his allegations show,
had he promptly asked Carson for a statement at that time would have learned the true
facts no later than 2009.
Weinberger contends that his damages did not occur until 2011, when Carson tried
to stonewall his inquiries into the status of his “Amen” contingent compensation. He also
contends that he was entitled to rely on respondents, who occupied a fiduciary or
confidential relationship and were hired to give professional advice concerning, among
others, the status of his contingent compensation rights. Broder’s statement that such
compensation would likely not be realized, followed by its alleged decision to play
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ostrich and deliberately choose to ignore the issue, lulled him into non-action, he
contends, while Myers continued this error by failing to look into the matter as well.
We disagree with Weinberger that he was not damaged until 2011 when Carson
first balked at revealing information about or paying the contingent compensation he was
owed since 1999. Instead, we agree with respondents that Weinberger’s damages in fact
began in 1999 when his contingent compensation rights accrued.
However, a plaintiff’s inability to discover a cause of action may occur “when it is
particularly difficult for the plaintiff to observe or understand the breach of duty, or when
the injury itself (or its cause) is hidden or beyond what the ordinary person could be
expected to understand.” (Shively v. Bozanich (2003) 31 Cal.4th 1230, 1248, italics
added.) Where a professional, such as a doctor or lawyer, commits malpractice, “delayed
accrual is justified on the basis that the expertise expected of professionals is beyond the
ability of laypersons to evaluate, and on the further basis that it may be impossible for a
layperson to even observe the professional’s application of his expertise.” (Ibid.)
On its face the second amended complaint falls into this category. According to
Weinberger, Broder was supposed to keep track of his contingent compensation rights
but failed to do so, consciously choosing to turn a blind eye when Carson stopped
sending annual accounting statements after 1998. Broder’s silence after its 1995
assertion that Weinberger was unlikely to ever receive contingent compensation from
“Amen” raises a factual question whether Weinberger was entitled to rely on Broder’s
silence, including Broder’s failure to properly advise him when it quit and Myers took
over in 2004. The same is true as to Myers, which allegedly remained silent about its
failure to monitor the contingent compensation issue despite having possession of
Broder’s files on the matter. We therefore view this as a case where the fact of injury
was hidden due to the alleged failings of Weinberger’s accountants during the
consecutive periods during which they represented him.
Respondents point to the trial court’s finding that Weinberger “sat on his hands”
and did nothing after Carson stopped sending accounting statements from 1999 on to
show that he should have acted much sooner. The basis of this finding is Weinberger’s
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allegation that neither he nor defendants received accounting statements after 1998. As
respondents point out, Weinberger does not allege that those statements were sent to only
them. We recognize this creates an ambiguity as to whether Weinberger received
statements up until 1999, and that if he did, the failure to receive them thereafter might
have triggered a duty of inquiry on his part. However, the allegation does not
conclusively foreclose the possibility that: Weinberger in fact never received any
statements, and they were sent to only his accountants; or that even if he received them
through 1998, their contents were too complex or confusing and required professional
interpretation; and whether, in any event, his state of mind concerning Broder’s
representations and respondents’ silence justified his inaction because he trusted
respondents to look after his interests.
We also acknowledge the logic of respondents’ contention that once Weinberger
began handling his own affairs in 2008 he was in a position to determine the facts at that
time simply by asking Carson for an accounting statement. As Weinberger’s allegations
show, once he did that he was able to determine the facts within a year. Accordingly, had
he done so in 2008, he would have learned the facts by 2009, which falls outside the
statute of limitations.
At bottom, however, this is nothing more than an inference that respondents ask us
to draw to fill in the blanks from Weinberger’s allegations. What triggered Weinberger’s
decision to ask Carson for an accounting statement in 2011 and whether anything that
transpired after Myers stopped working for him in 2008 go to Weinberger’s state of mind
at that time. This ambiguity in the pleadings does not clearly and affirmatively show that
the discovery rule does not apply here. Instead, it suggests only that the action may be
barred and therefore raises a factual question that must be resolved through the litigation
process. We therefore hold that Weinberger alleged sufficient facts to invoke the
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discovery rule and that the trial court erred by sustaining Broder’s demurrer and Myers’s
motion for judgment on the pleadings.5
DISPOSITION
The judgment dismissing the complaint as to Broder and the judgment on the
pleadings for Myers are reversed.
The trial court is directed to enter new orders: (1) overruling Broder’s demurrers
as to all causes of action against it; and (2) denying the motion for judgment on the
pleadings by Myers as to the malpractice and breach of fiduciary duty causes of action.
The fraud cause of action against Myers remains dismissed. Appellant shall recover his
appellate costs.
RUBIN, ACTING P. J.
WE CONCUR:
FLIER, J.
GRIMES, J.
5 Because we hold that the discovery rule applies, we need not address
Weinberger’s contentions that he was held to a lower standard of inquiry because
respondents were his fiduciaries and that respondents were equitably estopped from
invoking the statute of limitations defense.
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